*3510 1. Valid consents in writing having extended the time for assessment of 1918 taxes beyond the time this appeal was filed, February 22, 1926, assessment and collection held not barred in view of section 278(d), Revenue Act of 1924.
2. Where petitioner in 1923 paid damages for infringement of a patent in 1918, no fund being set aside for payment of such in 1918, and liability having been contested, held that this payment is not deductible as a loss for the year 1918.
*569 This is a proceeding for the redetermination of a deficiency in income and profits taxes for the fiscal year ended June 30, 1918, asserted by the respondent in the amount of $92,825.78. The issues raised are whether the petitioner was entitled to a deduction on account of a loss resulting from a lawsuit for patent infringement, and whether the collection of the deficiency is now barred or was barred at the time part of the deficiency was paid by the petitioner.
FINDINGS OF FACT.
The petitioner is a Connecticut corporation with principal*3511 office at Southington.
In 1918 the owners of a screw-driver patent instituted suit against petitioner in the United States District Court, District of Connecticut, for infringement of the patent. The suit culminated adversely to petitioner in this court on April 26, 1919, and certiorari was denied by the United States Supreme Court as reported in . In accordance with the court decision a master's report was prepared for the purpose of determining the damages due from the petitioner to the owners of the patent. This report showed a liability of $48,451.87, but by agreement between the parties, the amount of $45,000 was paid by petitioner in 1923 in lieu of the amount found due by the master.
The master's report was dated January 29, 1923, and in August of 1923, petitioner filed amended returns for each of the previous years affected by the decision of the courts. The amended return for the fiscal year ended June i0, 1918, showed a loss on patent infringement for that year in the amount of $11,966.77.
The respondent disallowed the reduction of income for the fiscal year ended June 30, 1918, in amount of $11,966.77, but allowed the entire amount of*3512 the damages as a deduction in the year 1923.
*570 The original return for the fiscal year ended June 30, 1918, was filed on August 28, 1918.
An instrument in writing designated a waiver bearing date of February 8, 1923, was filed by the petitioner extending the time for determination, assessment and collection of taxes for 1918 to March 1, 1924.
Another dated February 4, 1924, extended the time for determination, assessment and collection of these taxes to March 1, 1925.
Another dated January 24, 1925, extended the time for assessment of 1918 taxes to December 31, 1925.
Another dated November 16, 1925, extended the time for assessment to December 31, 1926.
The petition in this proceeding was filed on February 22, 1926. In addition to the instruments listed above the petitioner filed with the respondent the following instrument, which is dated November 10, 1926:
WAIVER
The Peck, Stow & Wilcox Company, a corporation organized under the laws of the State of Connecticut, located at Southington, Connecticut, under date of December 28, 1925, received a sixty-day Treasury letter in which there was proposed additional taxes in the amount of $92,825.78.
This*3513 corporation has filed an appeal with the Board of Tax Appeals, protesting against certain adjustments which, if its contentions are allowed, will reduce the proposed assessment by the approximate amount of $9,000.00. The corporation, however, desires to save itself the interest now accruing on the entire amount of the proposed deficiency in taxes and, therefore, under the provisions of Section 274 D of the Revenue Act of 1926, waives its rights under Subdivision A of said Section 274, and agrees to the immediate assessment by the Commissioner of Internal Revenue of additional taxes for the fiscal year ended June 30, 1918, in the amount of $92,000.00.
THE PECK, STOW & WILCOX COMPANY
By (Signed)
President
Attested: (Signed) F. D. TAYLOR,
Secretary.
The deficiency letter was mailed to the petitioner on December 28, 1925. The amount of $92,000 included in the waiver of November 10, 1926, was assessed by the respondent on November 27, 1926, and was paid on December 30, 1926.
No suit or other proceeding in court was instituted against the taxpayer for collection of the proposed deficiency prior to the execution of the waiver of November 10, 1926.
OPINION.
*3514 SIEFKIN: On December 28, 1925, a notice of deficiency of $92,825.78 was mailed to the petitioner by registered mail, and on February 22, *571 1926, a petition was filed with this Board. On November 10, 1926, the petitioner agreed to the immediate assessment of $92,000 of the deficiency and on November 27, 1926, such amount was assessed and on December 30, 1926, it was paid. The petitioner now contends that assessment and collection were barred by the statute of limitations.
The net result of the various instruments noted in our findings of fact gave the Commissioner until December 31,1926, for assessment. The last two instruments were signed by the petitioner after the Revenue Act of 1924 became a law. It may be presumed, as a matter of law, that the provisions of that Act were contemplated by the parties. Section 277(b) of that Act provides:
(b) The period within which an assessment is required to be made by subdivision (a) of this section in respect of any deficiency shall be extended (1) by 60 days if a notice of such deficiency has been mailed to the taxpayer under subdivision (a) of section 274 and no appeal has been filed with the Board of Tax*3515 Appeals, or, (2) if an appeal has been filed, then by the number of days between the date of the mailing of such notice and the date of the final decision by the Board.
Section 278 (d) of the same Act provides:
(d) Where the assessment of the tax is made within the period prescribed in section 277 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax. Nothing in this Act shall be construed as preventing the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made.
Section 278(c) of the same Act provides:
(c) Where both the Commissioner and the taxpayer have consented in writing to the assessment of the tax after the time prescribed in section 277 for its assessment the tax may be assessed at any time prior to the expiration of the period agreed upon.
It follows that, the notice of deficiency having been mailed to the petitioner within the period agreed by the parties and a petition having been filed with this Board, the period for assessment has not yet expired*3516 and, by the provisions of section 278(d) quoted above, the collection is not now barred.
The petitioner also contends that it should be entitled to a deduction in the amount of $11,966.77 in the taxable year ended June 30, 1918. This amount represents the portion of the profits realized by the petitioner during that year upon the sale of a patented screw-driver. In 1918 the owners of a screw-driver patent sued the petitioner for infringement of its patent, and the United States District Court, on April 26, 1919, rendered judgment against the petitioner. Upon appeal to the Circuit Court of Appeals the judgment was affirmed on December 10, 1919. Certiorari was denied by the United *572 States Supreme Court as reported in . In accordance with the court decision a master's report was prepared, showing damages due from the petitioner in the amount of $48,451.87, but the parties to the suit agreed to damages in the amount of $45,000, and this sum was paid by the petitioner in 1923.
Section 214(a) of the Revenue Act of 1918 provides:
That in computing net income there shall be allowed as deductions;
* * *
(4) Losses sustained during*3517 the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business.
In , we held that where goods were sold and shipped in 1919, and were rejected upon arrival in 1920, and the differences were arbitrated and settled against the petitioner in 1920, a loss claimed in this regard for 1919 could not be allowed.
Also, in , we held that the amount paid in 1922 in settlement of a law suit instituted in 1920 is not deductible in 1920.
In this proceeding, however, the evidence is that the petitioner, from 1919, until the termination of the litigation, was contesting any liability. In accrodance with the Board cases cited herein, we must hold that the amount paid by the petitioner in 1923 is not an allowable deduction for the fiscal year ended June 30, 1918.
Judgment will be entered for the respondent.